April 30, 2003

Notes: Employment Dimensions of the Current Recession

Notes: The Current Recession: Employment Dimensions

The output and production recession--the one that the National Bureau of Economic Research tracks and that the business press reports--began in the spring of 2001. The employment recession began a year earlier, at about the same time as the peak of the NASDAQ. Relative to the size of America's working age population, Americans worked 6.2 percent fewer hours in the winter of 2003 than they had three years before, in the winter of 2000. The working-age population of potential workers has grown by almost exactly 3 percent in the past three years, yet the absolute raw number of hours worked has fallen by 3.2 percent. 1979-1982 may have seen a larger decline in hours--need to check...

EPI understates magnitude of employment fall. Hours worked in spring 2001 already a full percentage point below hours worked in winter 2000, yet EPI starts counting from spring 2001...

Posted by DeLong at April 30, 2003 03:45 PM | TrackBack


First we transitioned to a post industrial economy, now we are transitioning to a post work economy. Nothing left to do but to buy cheap stuff made in China or cheap work done in India.

Posted by: Joe Blog on April 30, 2003 03:58 PM

Since the rate of unemployment has gone up only modestly, doesn't this mean that average hours worked by those in employment have fallen?

Perhaps we're getting towards a labour market which creates widespread under-employment (or, even just reduced overwork) rather than unemployment during recessions. That'd be nice because spreading the burden would reduce the misery they cause.

Posted by: derrida derider on April 30, 2003 08:51 PM

derrida derider,

The cycle peak in private hours worked, at 34.8 a week, was in January of 1998. There was a steady decline thereafter till November 2001 at 34.0. That does not track at all well with the jobless rate, which continued falling till April 2000, when it bottomed at 3.8%. The two are related in that they both reflect supply of and demand for labor, but there is no reason to expect the hours worked to "absorb" some of the jobless rate. The rate is lower than you would expect because lots of people have dropped out of the labor force, as measured by the folks at the Bureau of Labor Statistics. Variations in hours worked are more likely to reflect lags in hiring and firing, labor hoarding, stuff like that.

Posted by: K Harris on May 1, 2003 05:23 AM

Production capacity has been rapidly increasing in China and surrounding countries. There has been a great long term capital inflow to China these past 2 years to add the capacity that will in turn contribute to greater and less expensive American imports. Capacity use in America hoever has been only about 73-74%. Increasingly, China and surrounding countries have built a tade advantage that is likely to continue to expand as China gains production experience.

I would suggest there is little possibility of significant job creation in America just now. Domestic demand is not high enough and there is little reason for companies to add capacity to produce in America. We have a problem, and waiting for industry spending on capacity to increase does not seem promising.

Posted by: anne on May 1, 2003 11:27 AM

Apr 30, 2003

Asia Pacific: Resilient Exports
Andy Xie (Hong Kong) [Morgan Stanley]

SARS has merely interrupted East Asiaís relentless gain in competitiveness, in our view. The region is widening its competitive advantage in trade through integration with China. This has added production experience to Chinaís low cost. Multinational corporations are taking advantage of this production platform and shifting capital to China to optimize their global production distribution. These forces are widening the capability-adjusted cost gap between China and other production locations, resulting in rapid market-share gains by China.

Export companies in the region seem to have responded to the SARS crisis with resolve and creativity. Segmentation of shop-floor workforces, forward positioning of salesforces in main markets, maximum use of technology for logistics and customer interface are among the measures that appear to be keeping exports flowing. We believe this demonstration of the regionís competitiveness is deterring western buyers from considering sourcing diversification. No other region is close in terms of competitiveness, in our view.

Posted by: anne on May 1, 2003 11:55 AM

Anne, I would not believe that a trade deficit destroys jobs any more than a tax cut will create jobs. The US has been losing jobs to Asia for decades, yet we managed to hit 4% unemployment recently and brought our economy to the point of overheating. I also do not see how the growth in China's productivity hurts us. I am looking forward to their prosperity and I hope to benefit from their innovation just as I have benefitted when Japan and Korea prospered. The monitor right in front of me says Samsung, and I am happy to get a well made product at such a great price.

If the Chinese are willing to work for almost nothing and take our overpriced IOUs in exchange then it is really their problem and not ours. The dollar right now is doing what it needs to do to make the US globally competitive. I doubt that the government of China will want to continue to have their currency tied to it for much longer.

Posted by: snsterling on May 1, 2003 05:40 PM

"...yet we managed to hit 4% unemployment recently and brought our economy to the point of overheating..." - those are two different things, and the first one does rather depend on definitions.

"If the Chinese are willing to work for almost nothing and take our overpriced IOUs in exchange then it is really their problem and not ours." Wrong - it leaves out a third possibility, which in many ways is what is really happening. A lot of those IOUs get passed, literally passing the buck, and end up (among other things) buying up productive resources in yet other countries like Australia. So it isn't your problem (correct so far, at least while the good times roll), but it isn't their problem either (at least not 100%) - it is OURS.

Oh, and nobody buys Samsung monitors at great prices unless they happen to have the resources to buy them with; better quantity and quality at lower prices is not a refutation of the difficulty that is causing concern. Which is the significance of whether or not local jobs are leaking out; it remains a meaningful question. (Yes, I know the standard answer, that people get the newer better roles that are opening up. The point is, you can't leave that step out of the argument and you must be prepared to defend that too.)

Posted by: P.M.Lawrence on May 1, 2003 09:14 PM

P.M. Lawrence writes:
"Yes, I know the standard answer, that people get the newer better roles that are opening up."

Except many of the better roles are being sent away also. Wall Street Journal reported yesterday that the financial industry will send 500,000 jobs overseas in the next 5 years. That's 8% of the total financial industry employment.

The jobs are in financial analysis, regulatory reporting, accounting and graphic design. And probably more computer-oriented stuff which they've already been doing.

Saw an article about a New Haven firm that helps companies outsource their development work to programmers in Africa. Who make $2.50 an hour or thereabouts.

I find it hard to believe that the higher-paying jobs sent offshore will be magically replaced by new, better positions - and what positions appear probably won't be in anywhere near the numbers required to employ all those displaced.

It's part of the hangover of the bubble. High salaries in the bubble encouraged companies to go offshore. Which resulted in companies springing up and setting up the infrastructure to make that easier to do, with a few years to get kinks out and develop a reputation and seem like less of a risk.

India alone can probably produce more English-speaking programmers than the US can, just based on their huge population.

I have real doubts whether I should be bothering to get an MS in Computer Science. Perhaps I should get a degree in Farsi or Mandarin.

Posted by: Jon H on May 1, 2003 10:00 PM

K Harris - thanks for the figures; I'm not in the Us so don't follow Us labour market data.

But I did know that reductions in hours worked reflects inter alia labour hoarding - but thats precisely my point. The sunk huan capital investment in a skilled worker is such that an employr will tend to retain him or her during temporary downturns - as more and more workers are skilled, we should expect labour hoarding behaviour to increase over time.

But labour hoarding aims at maintaining employee attachment - so it doesn't prevent an employer in a slack labour market from cutting paid hours (which can, of course, translate to putting less pressure on for weekend work while slashing bonuses).

Posted by: derrida derider on May 1, 2003 10:08 PM

"I find it hard to believe that the higher-paying jobs sent offshore will be magically replaced by new, better positions - and what positions appear probably won't be in anywhere near the numbers required to employ all those displaced."

It depends what you mean by better. I am assuming you mean that programmers are better then janitors. Well, we are accustomed to thinking this way because of the relative scarcity of each compared with demand. And although janitors might work just as hard as programmers, the programmer possibly has come to think of himself as better than a janitor. So it comes as a shock when their job turns out not to be so scarce after all. Nothing less than a crisis on a personal level. But why should the janitor have to continue to receive relatively less? In the very short term it might mean a period of unemployment. But longer term it means retraining for work that is needed more. Maybe it will be nursing or some service within our economy, or maybe eventually farming or manufacturing (yes, eventually the Indians and Chinese and Africans and Japanese and Europeans will all have to get something in return for their labor, otherwise they have traded something for nothing--not too smart). Anyway, despite the trashing of the mode of employment someone imagined for themselves (incorrectly), the goal is that the janitor should eventually live as well as the programmer. It might not be as intellectually fulfilling a job, but if that is the case, you should be willing to work for less! That's right, the janitor should make more than a programmer for enduring the smells.

Forget the MS in Comp Sci. Try nursing school. That's what is needed I believe.

Posted by: snsterling on May 2, 2003 05:33 AM
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